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HSA Employer Contribution

Completed w-2 information for HSA contribution as well as form 8889 with checked box for high deductible health plan and the amount is still reflected as other income which increased my tax liability.

Any thoughts on why this is the case as my understanding is hsa contributions are not taxable income? Thank you

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Accepted Solutions
AnnetteB6
Employee Tax Expert

HSA Employer Contribution

The following information will explain how TurboTax handles the HSA contribution information  Entering information into your return regarding HSA contributions is a two-step process.  Each step is likely to cause the refund/balance due number to change because TurboTax constantly updates the calculations as you go through the return.  

 

The first step occurs when you enter your W-2 which includes contributions to the HSA.  After entering the information from your W-2, the amounts contributed to the HSA are included in your income (thus causing a higher balance due or lower refund).  

 

Then, the second step is to verify your eligibility to contribute to the HSA due to coverage under a High Deductible Health Plan.  This results in the HSA contribution being removed from your income since you were eligible to make the contributions.  Therefore the balance due amount will drop or the refund amount will increase.  

 

If you did not see the change in your refund or balance due after completing the second step in the process, you should revisit the HSA section of your return.  Pay close attention to any messages on the screen in case you are in a situation where the contribution was not allowed.

 

You can use the magnifying glass at the top of the screen to search for 'hsa' or go to Deductions and Credits > Medical > 1099-SA, HSA, MSA and click Update to go through that section again.

 

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3 Replies
AnnetteB6
Employee Tax Expert

HSA Employer Contribution

The following information will explain how TurboTax handles the HSA contribution information  Entering information into your return regarding HSA contributions is a two-step process.  Each step is likely to cause the refund/balance due number to change because TurboTax constantly updates the calculations as you go through the return.  

 

The first step occurs when you enter your W-2 which includes contributions to the HSA.  After entering the information from your W-2, the amounts contributed to the HSA are included in your income (thus causing a higher balance due or lower refund).  

 

Then, the second step is to verify your eligibility to contribute to the HSA due to coverage under a High Deductible Health Plan.  This results in the HSA contribution being removed from your income since you were eligible to make the contributions.  Therefore the balance due amount will drop or the refund amount will increase.  

 

If you did not see the change in your refund or balance due after completing the second step in the process, you should revisit the HSA section of your return.  Pay close attention to any messages on the screen in case you are in a situation where the contribution was not allowed.

 

You can use the magnifying glass at the top of the screen to search for 'hsa' or go to Deductions and Credits > Medical > 1099-SA, HSA, MSA and click Update to go through that section again.

 

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HSA Employer Contribution

Even after completing the interview steps for HSA TurboTax is still treating the HSA funds from my w-2 as taxable income. Not sure how to proceed, other than not list that line item on my W-2 reporting. Thanks

BillM223
Employee Tax Expert

HSA Employer Contribution

No, you must enter the code W in the W-2.

 

What was your HDHP coverage? For how many months? Did you carry over any excess contributions from 2023?

What was the code W amount?

 

Your annual HSA contribution limit is what determines if you made an overcontribution or not.

 

The annual HSA contribution is dependent on the base amount, insurance status (Family versus Self-only), how many months you were covered by an HDHP policy, whether or not you carried over excess contributions from the previous year (this reduces the current year's limit), and other less common situations.

 

Generally, if you made contributions (this includes what your employer contributed) that appear to be clearly under the limit, and the entire amount of the contributions is considered by TurboTax to be in excess, then the cause is that the taxpayer has not gone through the HSA interview in TurboTax, which allows TurboTax to calculate the HSA limit for the current year.

 

Note that you would owe a 6% excise tax on the carryover of the excess contribution ONLY if you do not withdraw the excess before April 15, 2025. Therefore, if you really made an excess contribution, you can "fix" this by contacting the HSA custodian to withdraw the excess that TurboTax indicates. Do this before April 15th.

 

But I would try to address the excess issue first, because it is easy to accidently indicate to TurboTax that you made excess contributions by mis-entries or lack of entries.

 

Here is an updated list of possibilities:

There are several major culprits for excess contributions (other than just actually contributing more than the limit). 

 

First, if you did not complete the HSA interview - that is, go all the way until you are returned to the "Your Tax Breaks" page - the limit still might be set to zero, causes a misleading excess contribution message. 

 

There are questions all the way to the end of the interview that affect the annual contribution limit.

 

Second, it is not unusual for taxpayers to accidentally duplicate their contributions by mistakenly entering what they perceive to be "their" contributions into the second line on the "Let's enter your HSA contributions" screen.

 

Normally, any employee who made contributions to his/her HSA through a payroll deduction plan has the contributions included in the amount with code "W" in box 12 on the W-2. This is on the first line on this screen (above). Don't enter the code W amount anywhere on the return other than on the W-2 page.

 

Third, if you weren't in HDHP coverage all 12 months, then the annual contribution limit is reduced on a per month ratio. NOTE, this means that you have to indicate when and under what type of HDHP plan you had. Be sure to answer the questions on the screen entitled "Was [name] covered by a High Deductible Health Plan in 2024?".

 

Fourth, if you had a carryover of excess contributions from 2023, then this carryover is applied to 2024 as a reduction to the 2024 HSA contribution limit, which could cause an excess condition in 2024 as well. But note: if you had an excess contribution in 2023 but cured it by withdrawing the excess in early 2023, then do NOT report an "overfunding" on your 2024 return.

 

Fifth, the Family limit ($8,300) is for the aggregate of contributions by both taxpayers, even if both taxpayers have their own HSAs. That is, one taxpayer can’t contribute $8,300 to his/her HSA and the other contribute $4,150 to the other HSA – the $8,300 limit applies to the aggregate of all HSA contributions credited to the family (in this case, the excess contributions would be $4,150).

 

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